The Senate in the early morning hours of December 2 narrowly approved a comprehensive tax reform bill that Republican supporters say will simplify the tax code while generating additional economic activity. The bill, S. 1, the Tax Cuts and Jobs Act, would leave in place the ability of communities to issue tax-exempt municipal bonds to finance water and other infrastructure projects – a top priority of AMWA – though the measure prohibit the issuance of tax-free advance refunding bonds beginning in 2018. Advance refunding is currently a common way for communities to lower their finance charges if interest rates decrease during a municipal bond’s repayment period, so the prohibition would take this cost-control tool off the table.
The Senate’s vote came just weeks after the House of Representatives approved its own tax reform legislation, also dubbed the Tax Cuts and Jobs Act (H.R. 1). Like the Senate bill, the House measure would maintain tax-free municipal bonds while eliminating advance refunding bonds. But the House bill would also go further and bar the issuance of new tax-free private activity bonds (PABs), which incentivize private companies to invest in community infrastructure. The Senate bill would make no changes to the tax status of PAB interest.
Congressional Republicans will soon begin what could be up to three weeks of negotiations to iron out the differences between the House and Senate bills. Because the preservation of municipal bonds and the removal of advance refunding bonds appear in both bills, those provisions are likely to be carried into the final bill. The House’s elimination of PABs, however, will be subject to negotiation as the final bill is put together. GOP leaders hope to send a final tax bill to President Trump’s desk by Christmas.